Edgar Filing: TELEFONICA BRASIL S.A.

viv20180323_6k.htm - Generated by SEC Publisher for SEC Filing

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of March, 2018

Commission File Number: 001-14475

TELEFÔNICA BRASIL S.A.
(Exact name of registrant as specified in its charter)

TELEFONICA BRAZIL S.A.
(Translation of registrant’s name into English)

Av. Eng° Luís Carlos Berrini, 1376 - 28º andar
São Paulo, S.P.
Federative Republic of Brazil
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F

Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes

TELEFÔNICA BRASIL S.A.

QUARTERLY INFORMATION

DECEMBER 31, 2017

(A free translation of the original in Portuguese)

Independent auditor's report

To the Board of Directors and Stockholders

Telefônica Brasil S.A.

Opinion

We have audited the accompanying parent company financial statements of Telefônica Brasil S.A. ("Company" or "Parent company"), which comprise the balance sheet as at December 31, 2017 and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, as well as the accompanying consolidated financial statements of Telefônica Brasil S.A. and its subsidiaries ("Consolidated"), which comprise the consolidated balance sheet as at December 31, 2017 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Telefônica Brasil S.A. and of Telefônica Brasil S.A. and its subsidiaries as at December 31, 2017, and the financial performance and cash flows for the year then ended, as well as the consolidated financial performance and cash flows for the year then ended, in accordance with accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Basis for opinion

We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the "Auditor's responsibilities for the audit of the parent company and consolidated financial statements" section of our report. We are independent of the Company and its subsidiaries in accordance with the ethical requirements established in the Code of Professional Ethics and Professional Standards issued by the Brazilian Federal Accounting Council, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the parent company and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Why it is a key audit matter	How the matter was addressed in the audit

Provision for tax and regulatory contingencies

The Company and its subsidiaries are parties to a number of judicial and administrative civil, labor, tax and regulatory proceedings which arise in the normal course of their activities (Notes 3 and 18 to the financial statements). With respect to these tax and regulatory areas, the Company and its subsidiaries, at December 31, 2017, present loss contingencies totaling R$ 44 billion and R$6.4 billion, respectively, of which R$ 3.5 billion and R$ 1.1 billion, respectively, had been provided for as management, supported by external legal counsel, believes the likelihood of loss to be probable. Because of the complexity of the tax and regulatory environment, the significance of the amounts involved and the critical judgment required to estimate the likelihood of loss, any changes in perspectives and/or judgment may significantly affect the financial statements of the Company and its subsidiaries. For these reasons, we focused on the calculation and disclosure of these contingencies during our audit.	Our audit procedures included: a) Obtaining confirmation from the Company's external legal counsel for ongoing tax and regulatory proceedings, as well as management’s estimates of the amounts and the likelihood of loss; b) Having management obtain, for significant tax and regulatory proceedings, with more subjective and complex interpretations, a position from renowned, independent experts on the likelihood of loss, and the basis for a defense; c) For the more significant contingencies, meeting with management to discuss and assess, with the support of our experts, when applicable, the Company’s basis of conclusion; d) Assessing the adequacy of the disclosures presented in the notes to the financial statements; and e) Understanding and assessing the principal internal controls over the contingency identification and registration/disclosure processes. We have concluded that management has adequate internal controls and accounting policies, as well as supporting documentation, to provide a reasonable and consistent basis for its conclusions.


Recognition of unbilled revenue
The recognition of revenue obtained from telecommunication services is considered a significant inherent risk, because it involves complex billing systems, requiring the processing of large volumes of data across varied product portfolios, which contain pricing inputs from a number of marketing plans (Notes 3 and 23 to the financial statements). Additionally, within this context, revenues are recognized on a monthly basis upon inflow of economic benefits and when there are the billed and unbilled revenues, arising from the services rendered between the billing date and the end of the month, being identified, processed, and recognized at the end of the service month. Unbilled revenue recorded in the month during which the services were rendered is reversed in the month subsequent to the effective billing month, and a new calculation for the measurement of unbilled revenue from services rendered during that month is made. This practice is repeated during the year. We focused on this area during our audit because any inconsistency in the calculation of these estimates may significantly affect the financial statements of the Company and its subsidiaries.	Our audit procedures included, among others: a) Assessing and testing the relevant Information Technology (IT) systems; b) Testing the transactions of revenue from services rendered on a non-statistical sampling basis; c) Understanding and assessing management’s estimates to determine realized unbilled revenue at the end of the year; d) Recalculating the estimate of revenue realized but not billed at the end of the year, and comparing these estimates with revenue effectively billed in the month after the closing; e) Adequacy of disclosures presented in the notes to the financial statements; and f) Understanding and assessing the principal internal controls over the measurement and accounting recognition of unbilled revenue from services rendered. We have established that the internal controls and the estimates used by management have applied a reasonable basis for the recognition of revenue, consistent with the information included in the financial statements.
Internal control and information technology environment

The Company is engaged in the provision of telecommunications services and in the development of activities that are necessary or support the performance of such services. The services include: (i) Switched Fixed Telephone Service ("STFC"), (ii) Multimedia Communication Service ("SCM"), data communication, including broadband Internet); (iii) Personal Mobile Service ("SMP"); and (iv) Cable Television Network (Conditioned Access Service - "SEAC"), throughout Brazil, via concessions and authorizations, as established in the General Grant Plan ("PGO"). The Company is highly dependent on its information technology structure, which processes a considerable volume of transactions from its business operations. Because of the Company's history of acquisitions as well as the volume of the Company's transactions, its information technology structure comprises more than one technological platform, each with different processes and segregated controls, which require a robust internal control system. Management is required to closely monitor daily operations, including the follow-up and compilation of physical quantitative, financial, and fiscal information from the services rendered. We focused on this area in our audit because we identified a number of both manual and automated operational controls, a high level of system accesses, and decentralized segregation of duties environment. The assessment of the effectiveness of the processes and controls is critical to the audit process and to the definition of the intended scope for obtaining the necessary comfort, because a failure in the controls and/or processes might result in the incorrect processing of information and, consequently, in the improper presentation of the financial statements.	With the support of our information technology experts, our audit procedures included the understanding and assessment of the information technology environment and the automated and manual controls over the application systems that are relevant to the preparation of the financial statement. The procedures carried out comprise the combination of testing of the principal controls (and, when necessary, compensatory control testing), the testing of information security components, of privileged management access and of segregation of duties, that impact the financial statements. We also tested the automated and manual accounting entries, using a sample defined based on specific criteria related to the control transgression risk. The results of these procedures provided appropriate and sufficient audit evidence regarding the proper preparation of the financial statements.

Other matters

Statements of value added

The parent company and consolidated statements of value added for the year ended December 31, 2017, prepared under the responsibility of the Company's management and presented as supplementary information for IFRS purposes, were submitted to audit procedures performed in conjunction with the audit of the financial statements of the Company and its subsidiaries. For the purposes of forming our opinion, we evaluated whether these statements are reconciled with the financial statements and accounting records, as applicable, and if their form and content are in accordance with the criteria defined in the Brazilian Technical Pronouncements Committee CPC 09 - "Statement of Value Added". In our opinion, these statements of value added have been properly prepared, in all material respects, in accordance with the criteria established in the Technical Pronouncement, and are consistent with the parent company and consolidated financial statements taken as a whole.

Prior-year information

The financial statements for the year ended December 31, 2016 were audited by another firm of independent auditors, whose report, dated February 17, 2017, expressed an unqualified opinion on those statements.

Other information accompanying the parent company and consolidated financial statements and the auditor's report

The Company's management is responsible for the other information that comprises the Management Report.

Our opinion on the parent company and consolidated financial statements does not cover the Management Report, and we do not express any form of audit conclusion thereon.

In connection with the audit of the parent company and consolidated financial statements, our responsibility is to read the Management Report and, in doing so, consider whether this report is materially inconsistent with the parent company and consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement in the Management Report, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the parent company and consolidated financial statements

Management is responsible for the preparation and fair presentation of the parent company and consolidated financial statements in accordance with accounting practices adopted in Brazil and with the IFRS as issued by the IASB, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the parent company and consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the financial reporting process of the Company and its subsidiaries.

Auditor's responsibilities for the audit of the parent company and consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the parent company and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the parent company and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal controls of the Company and its subsidiaries.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the parent company and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the parent company and consolidated financial statements, including the disclosures, and whether these financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

São Paulo, February 16, 2018

PricewaterhouseCoopers

Auditores Independentes

CRC 2SP000160/O-5

Estela Maris Vieira de Souza

Contadora CRC 1RS046957/O-3

TELEFÔNICA BRASIL S.A.
Balance Sheets
At December 31, 2017 and 2016 (In thousands of reais)


		Company		Consolidated				Company		Consolidated
ASSETS	Note	12.31.17	12.31.16	12.31.17	12.31.16	LIABILITIES AND EQUITY	Note	12.31.17	12.31.16	12.31.17	12.31.16

Current assets		16,668,039	17,482,265	16,731,666	18,398,995	Current liabilities		18,819,861	20,280,286	17,862,531	20,438,575
Cash and cash equivalents	4	3,681,173	4,675,627	4,050,338	5,105,110	Personnel, social charges and benefits	14	648,957	746,798	723,380	760,643
Trade accounts receivable	5	8,413,403	8,282,685	8,588,466	8,701,688	Trade accounts payable	15	8,560,844	7,539,395	7,447,100	7,611,246
Inventories	6	324,711	368,151	348,755	410,413	Taxes, charges and contributions	16	1,669,741	1,698,334	1,731,315	1,770,731
Taxes recoverable	7.a	2,386,258	2,952,622	2,563,990	3,027,230	Dividends and interest on equity	17	2,396,116	2,195,031	2,396,116	2,195,031
Judicial deposits and garnishments	8	324,465	302,349	324,638	302,424	Provisions	18	1,434,911	1,183,623	1,434,911	1,183,623
Prepaid expenses	9	425,298	336,508	446,439	343,092	Deferred revenue	19	370,493	428,488	372,561	429,853
Dividends and interest on equity	17	323,206	-	-	-	Loans and financing	20	1,620,955	2,542,975	1,620,955	2,542,975
Derivative financial instruments	31	87,643	68,943	87,643	68,943	Debentures	20	1,412,486	2,120,504	1,412,486	2,120,504
Other assets	10	701,882	495,380	321,397	440,095	Derivative financial instruments	31	5,107	183,212	5,239	183,212
						Other liabilities	21	700,251	1,641,926	718,468	1,640,757
Noncurrent assets		85,495,114	84,475,240	84,651,169	83,667,264
Long-term assets						Noncurrent liabilities		13,881,934	12,432,800	14,058,946	12,383,265
Short-term investments pledged as collateral		81,472	78,153	81,486	78,166	Personnel, social charges and benefits	14	21,648	11,016	23,284	11,016
Trade accounts receivable	5	167,682	200,537	273,888	305,411	Trade accounts payable	15	-	71,907	-	71,907
Taxes recoverable	7.a	740,104	474,240	743,285	476,844	Taxes, charges and contributions	16	18,463	20,996	49,448	49,131
Deferred taxes	7.b	-	-	371,408	27,497	Deferred taxes	7.b	709,325	88,695	709,325	-
Judicial deposits and garnishments	8	6,155,821	5,974,733	6,339,167	6,049,142	Provisions	18	6,566,056	6,591,493	6,709,839	6,625,638
Prepaid expenses	9	21,684	35,340	23,116	36,430	Deferred revenue	19	350,637	511,786	350,637	511,786
Derivative financial instruments	31	76,762	144,050	76,762	144,050	Loans and financing	20	2,320,147	3,126,792	2,320,147	3,126,792
Other assets	10	86,345	53,363	88,935	55,565	Debentures	20	3,108,253	1,433,803	3,108,253	1,433,803
Investments	11	1,949,276	1,407,155	98,902	85,745	Derivative financial instruments	31	15,412	1,404	15,412	1,404
Property, plant and equipment	12	33,112,532	31,837,549	33,222,316	31,924,918	Other liabilities	21	771,993	574,908	772,601	551,788
Intangible assets	13	43,103,436	44,270,120	43,331,904	44,483,496
						TOTAL LIABILITIES		32,701,795	32,713,086	31,921,477	32,821,840

						Equity		69,461,358	69,244,419	69,461,358	69,244,419
						Capital	22	63,571,416	63,571,416	63,571,416	63,571,416
						Capital reserves	22	1,213,522	1,272,581	1,213,522	1,272,581
						Income reserves	22	2,463,228	2,474,974	2,463,228	2,474,974
						Other comprehensive income	22	21,328	11,461	21,328	11,461
						Additional proposed dividends	22	2,191,864	1,913,987	2,191,864	1,913,987

TOTAL ASSETS		102,163,153	101,957,505	101,382,835	102,066,259	TOTAL LIABILITIES AND EQUITY		102,163,153	101,957,505	101,382,835	102,066,259

TELEFÔNICA BRASIL S.A.
Income Statements
Years ended December 31, 2017 and 2016
(In thousands of reais, except earnings per share)

		Company		Consolidated
	Note	2017	2016	2017	2016

Net operating revenue	23	39,343,728	38,625,395	43,206,832	42,508,459

Cost of sales	24	(19,135,195)	(18,734,552)	(20,272,530)	(20,823,014)

Gross profit		20,208,533	19,890,843	22,934,302	21,685,445

Operating income (expenses)		(15,301,695)	(14,753,448)	(16,302,065)	(15,317,426)
Selling expenses	24	(12,758,952)	(11,996,153)	(13,136,474)	(12,455,366)
General and administrative expenses	24	(2,334,905)	(2,685,366)	(2,443,105)	(2,793,386)
Other operating income	25	782,932	939,516	464,182	968,479
Other operating expenses	25	(990,770)	(1,011,445)	(1,186,668)	(1,037,153)

Operating income		4,906,838	5,137,395	6,632,237	6,368,019

Financial income	26	1,675,172	2,654,574	1,755,958	2,781,359
Financial expenses	26	(2,636,113)	(3,936,318)	(2,659,002)	(4,015,900)
Equity pickup	11	1,303,484	845,776	1,580	1,244

Income before taxes		5,249,381	4,701,427	5,730,773	5,134,722

Income and social contribution taxes	27	(640,591)	(616,185)	(1,121,983)	(1,049,480)

Net income for the year		4,608,790	4,085,242	4,608,790	4,085,242


Basic and diluted earnings per common share (in R$)	22	2.56	2.27
Basic and diluted earnings per preferred share (in R$)	22	2.82	2.50

TELEFÔNICA BRASIL S.A. Statements of Changes in Equity Years ended December 31, 2017 and 2016 (In thousands of reais)



		Capital reserves			Income reserves
	Capital	Special goodwill reserve	Other capital reserves	Treasury shares	Legal reserve	Tax incentive reserve	Expansion and modernization reserve	Retained earnings	Proposed additional dividends	Other comprehensive income	Total equity

Balances at December 31, 2015	63.571.416	63.074	1.297.295	(87.805)	1.703.643	6.928	700.000	-	1.287.223	25.468	68.567.242
Payment of additional dividend for 2015	-	-	-	-	-	-	-	-	(1.287.223)	-	(1.287.223)
Prescribed equity instruments, including unclaimed dividends and interest on equity	-	-	-	-	-	-	-	221.559	-	-	221.559
Preferred shares delivered referring to the judicial process of expansion plan	-	-	2	15	-	-	-	-	-	-	17
DIPJ adjustment - Tax incentives	-	-	-	-	-	10.141	-	(10.141)	-	-	-
Other comprehensive income	-	-	-	-	-	-	-	(156.266)	-	(14.007)	(170.273)
Net income for the year	-	-	-	-	-	-	-	4.085.242	-	-	4.085.242
Allocation of income:
Legal reserve	-	-	-	-	204.262	-	-	(204.262)	-	-	-
Interim interest on equity	-	-	-	-	-	-	-	(2.172.145)	-	-	(2.172.145)
Reversal of expansion and Modernization Reserve	-	-	-	-	-	-	(700.000)	700.000	-	-	-
Expansion and Modernization Reserve	-	-	-	-	-	-	550.000	(550.000)	-	-	-
Additional proposed dividends	-	-	-	-	-	-	-	(1.913.987)	1.913.987	-	-

Balances at December 31, 2016	63.571.416	63.074	1.297.297	(87.790)	1.907.905	17.069	550.000	(0)	1.913.987	11.461	69.244.419
Payment of additional dividend for 2016	-	-	-	-	-	-	-	-	(1.913.987)	-	(1.913.987)
Unclaimed dividends and interest on equity	-	-	-	-	-	-	-	101.778	-	-	101.778
Repurchase of preferred shares	-	-	-	(32)	-	-	-	-	-	-	(32)
Preferred shares delivered referring to the judicial process of expansion plan	-	-	-	2	-	-	-	-	-	-	2
DIPJ adjustment - Tax incentives	-	-	-	-	-	10.815	-	(10.815)	-	-	-
Other comprehensive income	-	-	-	-	-	-	-	(113.811)	-	9.867	(103.944)
Equity transactions (Note 1 c.1)	-	-	(59.029)	-	-	-	-	-	-	-	(59.029)
Net income for the year	-	-	-	-	-	-	-	4.608.790	-	-	4.608.790
Allocation of income:
Legal reserve	-	-	-	-	230.439	-	-	(230.439)	-	-	-
Interim interest on equity	-	-	-	-	-	-	-	(2.416.639)	-	-	(2.416.639)
Reversal of expansion and Modernization Reserve	-	-	-	-	-	-	(550.000)	550.000	-	-	-
Expansion and Modernization Reserve	-	-	-	-	-	-	297.000	(297.000)	-	-	-
Additional proposed dividends	-	-	-	-	-	-	-	(2.191.864)	2.191.864	-	-

Balances at December 31, 2017	63.571.416	63.074	1.238.268	(87.820)	2.138.344	27.884	297.000	(0)	2.191.864	21.328	69.461.358

TELEFÔNICA BRASIL S.A.


Consolidated Statements of Cash Flows
Years ended December 31, 2017 and 2016
(In thousands in reais)

	Company		Consolidated
	2017	2016	2017	2016
Cash flows from operating activities

Income before taxes	5.249.381	4.701.427	5.730.773	5.134.722
Ajustement of:
Depreciation and amortization	7.826.184	7.166.177	7.853.734	7.654.406
Foreign exchange on loans and derivative financial instruments	60.237	75.075	57.832	75.075
Monetary losses	536.891	632.120	543.852	620.570
Equity pickup	(1.303.484)	(845.776)	(1.580)	(1.244)
Gains on write-off/sale of assets	(74.619)	(447.178)	(74.337)	(451.215)
Provision for impairment - accounts receivable	1.405.085	1.225.742	1.481.015	1.348.221
Change in liability provisions	(58.423)	214.016	(93.479)	273.664
Write-off and reversals for impairment - inventories	(45.109)	(34.151)	(45.089)	(36.898)
Pension plans and other post-retirement benefits	30.877	5.962	31.511	5.243
Provisions for tax, civil, labor and regulatory contingencies	990.770	953.003	999.419	985.176
Interest expense	926.220	1.009.060	926.220	1.049.553
Decrease divestiture	-	(20.551)	-	(32.924)
Decrease customer loyalty program	(5.856)	(39.683)	(5.856)	(39.683)
Other	(5.499)	(3)	(2.881)	(3)

Changes in assets and liabilities
Trade accounts receivable	(1.502.948)	(1.373.628)	(1.274.181)	(1.739.550)
Inventories	88.549	224.264	106.393	230.116
Taxes recoverable	(338.754)	(701.786)	(330.398)	(823.360)
Prepaid expenses	25.118	112.421	11.051	105.845
Other assets	(244.434)	92.839	82.109	23.202
Personnel, social charges and benefits	(87.209)	31.694	(42.830)	53.005
Trade accounts payable	1.217.264	(798.909)	121.577	(707.998)
Taxes, charges and contributions	220.381	439.125	180.915	601.970
Other liabilities	(2.078.311)	(1.350.044)	(2.065.631)	(1.392.510)
	7.582.930	6.569.789	8.459.366	7.800.661

Cash generated from operations	12.832.311	11.271.216	14.190.139	12.935.383

Interest paid	(859.586)	(886.156)	(859.586)	(926.223)
Income and social contribution taxes paid	-	(199.605)	(689.493)	(568.335)

Net cash (used in) generated by operating activities	11.972.725	10.185.455	12.641.060	11.440.825

Cash flows from investing activities
Additions to PP&E, intangible assets and others	(8.195.876)	(6.828.200)	(8.367.660)	(7.470.869)
Cash received from sale of PP&E items	19.355	778.240	20.672	778.819
Cash paid for acquisition of companies	-	-	(250.000)	-
Cash received from sale of investments	-	-	31.804	-
Redemption of (increase in) judicial deposits	85.179	(183.845)	83.500	(202.525)
Dividends and interest on equity received	384.588	767.554	-	3
Cash and cash equivalents by incorporation	-	358.579	43.351	-
Other	111	-	111	-

Net cash (used in) generated by investing activities	(7.706.643)	(5.107.672)	(8.438.222)	(6.894.572)

Cash flows from financing activities
Payment of loans, financing and debentures	(4.485.495)	(2.001.863)	(4.485.495)	(2.171.100)
Loans and financing raised	3.055.876	466.629	3.055.876	466.629
Received of derivative financial instruments	104.214	132.410	107.846	132.410
Payment of derivative financial instruments	(266.548)	(239.379)	(267.254)	(239.379)
Payment for reverse split of shares	-	(164)	-	(164)
Dividend and interest on equity paid	(3.668.551)	(2.966.384)	(3.668.551)	(2.966.384)
Treasury shares	(32)	-	(32)	-

Net cash (used in) generated by financing activities	(5.260.536)	(4.608.751)	(5.257.610)	(4.777.988)

Increase (decrease) in cash and cash equivalents	(994.454)	469.032	(1.054.772)	(231.735)

Cash and cash equivalents at beginning of the year	4.675.627	4.206.595	5.105.110	5.336.845
Cash and cash equivalents at end of the year	3.681.173	4.675.627	4.050.338	5.105.110

TELEFÔNICA BRASIL S.A.
Statements of Other Comprehensive Income
Years ended December 31, 2017 and 2016
(In thousands of reais)

		Company		Consolidated
	Note	2017	2016	2017	2016
Net income for the year		4.608.790	4.085.242	4.608.790	4.085.242

Other comprehensive income (losses) that may be reclassified into income (losses) in subsequent periods		9.867	(14.007)	9.867	(14.007)
Unrealized gains ( losses) on investments available for sale	11	338	83	338	83
Gains (losses) on derivative financial instruments	31	(2.417)	4.803	(2.417)	4.803
Taxes		707	(1.661)	707	(1.661)

Cumulative Translation Adjustments (CTA) on transactions in foreign currency	11	11.239	(17.232)	11.239	(17.232)

Other comprehensive income (losses) to be reclassified into income (losses) in subsequent periods		(107.694)	(156.186)	(113.811)	(156.266)
Actuarial gains (losses) and limitation effect of the assets of surplus plan	30	(163.174)	(236.645)	(171.296)	(236.767)
Taxes		55.480	80.459	57.485	80.501

Interest in comprehensive income of subsidiaries	11	(6.117)	(80)	-	-

Other comprehensive income		(103.944)	(170.273)	(103.944)	(170.273)

Comprehensive income for the year		4.504.846	3.914.969	4.504.846	3.914.969

TELEFÔNICA BRASIL S.A.
Statements of Value Added
Years ended December 31, 2017 and 2016
(In thousands in reais)

	Company		Consolidated
	2017	2016	2017	2016

Revenues	55.205.339	53.004.204	58.937.750	57.732.738
Sale of goods and services	54.919.544	53.209.390	59.265.466	57.897.521
Other revenues	1.690.880	1.020.556	1.153.299	1.183.438
Provision for impairment of trade accounts receivable	(1.405.085)	(1.225.742)	(1.481.015)	(1.348.221)

Inputs acquired from third parties	(18.696.568)	(18.491.586)	(19.942.270)	(20.418.608)
Cost of goods and products sold and services rendered	(9.316.305)	(9.919.037)	(10.412.308)	(11.611.718)
Materials, electric energy, third-party services and other expenses	(9.499.989)	(9.033.230)	(9.648.698)	(9.273.974)
Loss/recovery of assets	119.726	460.681	118.736	467.084

Gross value added	36.508.771	34.512.618	38.995.480	37.314.130

Withholdings	(7.826.184)	(7.166.177)	(7.853.734)	(7.654.406)
Depreciation and amortization	(7.826.184)	(7.166.177)	(7.853.734)	(7.654.406)

Net value added produced	28.682.587	27.346.441	31.141.746	29.659.724

Value added received in transfer	2.978.656	3.500.350	1.757.538	2.782.603
Equity pickup	1.303.484	845.776	1.580	1.244
Financial income	1.675.172	2.654.574	1.755.958	2.781.359

Total undistributed value added	31.661.243	30.846.791	32.899.284	32.442.327

Distribution of value added	(31.661.243)	(30.846.791)	(32.899.284)	(32.442.327)

Personnel,social charges and benefits	(3.783.519)	(3.989.707)	(4.107.176)	(4.328.985)
Direct compensation	(2.601.425)	(2.723.511)	(2.803.226)	(2.961.166)
Benefits	(996.215)	(1.081.627)	(1.101.174)	(1.167.746)
Unemployment Compensation Fund (FGTS)	(185.879)	(184.569)	(202.776)	(200.073)
Taxes, charges and contributions	(17.824.012)	(16.413.347)